Twitter Inc (NYSE:TWTR) has risen as much as 10% since I stated that TWTR stock could make a comeback if it were willing to change. TWTR news has been sparse during this time, other than the company announcing its intention to raise the character limit on tweets to 280 characters.
The change could increase flexibility without compromising the need to limit message sizes. However, without major changes to the platform, Twitter is unlikely to make changes to attract investors.
To paraphrase the often repeated expression about Brazil –Twitter is a stock of the future, and always will be.
The character limitations, as well as its existence of the choice megaphone for many celebrities, have built Twitter into a platform with 328 million monthly average users (MAUs). Unfortunately for investors in TWTR stock, the company has failed to translate this into investor gains.
Twitter May Be Hurting Its Own Niche
One of its strengths is in its role as a forum for political discussions. Regrettably, Twitter itself has become the political discussion.
Twitter has struggled to compete with Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) in selling ads. The possibility of the government inquiries into those two regarding Russian election ad purchases would be one of the few positives of having poor ad sales. Unfortunately for Twitter, they’ve failed to escape this criticism, despite their cooperation with Congressional authorities.
Moreover, Twitter is in trouble over banning an ad released by Tennessee Congresswoman Marsha Blackburn. They also faced criticism for temporarily blocking Rose McGowan after she implicated Harvey Weinstein on the platform. Twitter reversed both bans. However, even if the bans are not repeated, interfering with one of its successful niches could easily hurt investor confidence.
Further, Twitter is following in the footsteps of the once-popular social media platform, Myspace. From 2005 to 2008, Myspace was the world’s most popular social media site. However, Facebook and Twitter overtook it with their flexibility and greater choice of features.
Contrary to popular belief, Myspace not only still exists but still has over one billion registered users. Today, it remains a popular choice among younger users for musical content. The site also attracts older age groups with weekly or monthly visitors who are looking for “#TBT,” or “Throwback Thursday” pictures. The site attracted 15 million monthly visitors as late as 2016.
Myspace never went public. However, News Corp (NASDAQ:NWSA) acquired the social media company at its peak for $580 million in 2005. When Specific Media bought the site in 2011, it paid News Corp only $35 million.
TWTR Stock Will Likely Fall Further
Unfortunately for shareholders, Twitter stock will likely follow the same path.
In fairness, TWTR stock already has fallen about 75% from its all-time high of $74 per share. However, to match the loss in value of Myspace, Twitter would have to fall to below $5 per share. That scenario may not completely materialize.
Nonetheless, it indicates the company has further to fall.
The next TWTR earnings report is scheduled for Oct. 26. Average estimates indicate a loss of 3 cents per share. While that number would mean an improvement over the GAAP loss of 15 cents per share the company had last year, it falls short of profitability. Investors will also likely want to hear if any improvement on MAUs occurred and if the company has any ideas that will improve user engagement.
Despite the increased character limit, the company needs to make more substantial, profit-oriented changes. As conditions currently stand, Twitter succeeds with celebrity engagement and quick, back and forth discussions. However, its stagnating MAU numbers and inability to attract users with new offerings bodes poorly for the stock.
The company can reinvent itself. However, Twitter may be a niche site as a result. It may also be destined to follow the path of Myspace. Either way, until Twitter makes changes that can attract user, and ultimately, buyer attention, investors are best off holding onto their Twitter profile and selling their TWTR stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.